02 What is Forex and What Does it Mean

Ever wondered What is Forex, What Does Forex Mean? Read on to find out!

FOREX simply means Foreign Currency Exchange. It has just been shortened to save us all a few spoken syllables and bit of ink when writing it. It is also often referred to as just FX.

FX, FOREX, Foreign Exchange all means the same thing, the exchange of one currency for another at an agreed price.

Most countries have their own currency, in fact there are about 180 different currencies around the world, some of which are shown here.

What is Forex and What Does it Mean

If you want to buy or sell any product or service from a different country (that has a different currency), you will need to exchange your local currency for the currency of the country that you are dealing with.

And when you exchange 1 currency for another it will not be a direct 1 for 1 swap. The value of these two currencies will most likely be different, which is where the exchange rate comes in.

For example:

$1.00 NZD is currently not worth $1.00 USD It is worth only $0.75 USD at the time of writing this course.

GLS Equity NZD USD Currency Pair

This means the USD is currently a stronger currency (worth more) than the NZD. But this changes all the time, the exchange rate of 0.75 for the NZD/USD is always fluctuating.

Using this example, if you lived in NZ and went to the US for a holiday. And you tock $1,000 NZD for spending money, you would need to change your NZD to USD. Because the people in the US
will not accept your NZD, you cannot buy a latte from Starbucks in LA with NZD.

Now when you change your $1,000 NZD you would get in return only $750 USD – (1,000 * 0.75). This is the basic concept of how and why the FX market exists, which as you can see in this example in its most simplistic form is really straight forward.


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